This one is for Blogreader Salafi from Chennai ~ Goldstone Infratech @ Rs 10 ~ Open Offer at Rs 23 or at Rs 43 ? Supreme Court will decide ~ but it seems a Win-Win either way.
Background of the Open Offer
On November 4,2008 Saffron Capital Advisors of Mumbai ,as Manager to the Offer and on behalf of the Board of Directors of Goldstone Exports Ltd (GEL) the Acquirer (now Trinity Infraventures),issued a Public Announcement in the Newspapers that the Acquirer makes an Open Offer for 20% of the Equity of Listed Goldstone Infratech Ltd (GIL) (erstwhile GoldstoneTeleservices) at the Price of Rs 23 per share
On December 16,2008 SEBI advices the Acquirer to use October 29,2008 as the Reference Date to determine the Offer Price
It was on this Date when Shares were allotted to GEL on conversion of the Share Warrants they held ~ The Offer Price arrived at was Rs 43
GEL had used the Reference Date of January 25,2007 when the Board of GIL had decided to issue 1.5 cr Share Warrants to GEL which could be converted into Shares at Rs 22 within 16 months of the allotment ~ GEL held 9.51% of GIL’s Equity of 2.1 cr shares of FV Rs 4 at the time and the conversion would take their stake to 47% ~ The Conversion took place on October 29,2008 when GIL issued 1.5 cr shares to GEL
GEL disputed SEBI and appealed to SAT which admitted the Appeal on February 16,2009 and later upheld SEBI Position ~ GEL then took the matter to the Apex Court,Supreme Court in 2009 (Civil Appeal 7666 of 2009)
On hearing Counsel on August 13,2012 the Court ordered to put it up for Final Disposal on October 10,2012 ~ It has been listed but never comes up for Hearing ~ the next listing date is July 9,2013 ~ so hearing is actually overdue after 16 ordered listing till date in 2009 (1),2010(2),2011(5) and 2012(8)
An Investment Opportunity to consider in such a situation
GIL is available at Rs 10 ,near 52 Week Low of Rs 9 ~ 52 Week High was in October 2012 at Rs 17.60 on BSE ~ It is also listed on NSE
Market Cap is Rs 36 Crs ~The Volumes are not to heavy ~ Two Week average is below 5000 on BSE and yesterday it was under 1000
Current Shareholding of GIL as at March 31,2013 ~ Equity is Rs 14.43 Crs of FV Rs 4 comprising 36080737 shares
|
Promoters |
No of Shares |
% Stake |
|
Trinity Infraventures Ltd |
17776165 |
49.27 |
|
L P Sashi Kumar |
534350 |
1.48 |
|
P S Parthasarthy |
37000 |
0.10 |
|
Total Promoters |
18347515 |
50.85 |
|
|
|
|
|
Non Promoters |
|
|
|
LRSD Global Holdings Pvt Ltd |
2410208 |
6.68 |
|
Globe Capital Market Ltd |
1160795 |
3.22 |
|
Smridhi Farms Pvt Ltd |
566862 |
1.57 |
|
Aggarwal Rakesh |
436525 |
1.21 |
|
Ashok Kumar Sharma |
365527 |
1.01 |
|
Total |
4939917 |
13.69 |
|
Other 9988 Shareholders |
12793305 |
35.46 |
|
Total Non Promoters |
17733222 |
49.15 |
|
Total 9996 Shareholders |
36080737 |
100 |
The Open Offer will have to be made to Non Promoter Shareholders to pick up 20% of the Equity
Thus 20% of Equity works out to an Open Offer for 7216147 shares => is @ 40.7% of the Non Promoter Shareholding of 17733222 Shares
This would mean that for every 10 shares held ,the Open Offer Success Ratio should be 4 Shares
Now lets assume you invest in 10 shares of GIL at current Price of Rs 10 => Investment is Rs 100
This will how your Returns will pan out if Supreme Court decided in favour of GEL or SEBI
|
No of Shares |
If GEL Wins Open Offer at Rs 23 (Rs) |
If SEBI Wins Open Offer at Rs 43 (Rs) |
|
|
Investment |
10 |
100 |
100 |
|
Open Offer Shares Accepted |
(4) |
(92) |
(172) |
|
Holding Remaining |
6 |
8 |
(72) |
|
Average Cost |
1.33 |
Free |
If you sell the remaining 6 Shares at expected Post Open Offer dropped share Price of Rs 5 (see reasoning below )you’ll get Rs 30 ~ so if GEL wins then the returns on your Investment of Rs 100 would be Rs 22 or 22% (Inflows Rs 92 + Rs 30) and in case SEBI wins as is expected then the Returns are quite handsome at 102% (Inflows Rs 172 + Rs 30)
It’s a Win-Win in either case
However Risks You should Consider
- Holding Period ~ It could stretch from a few Months to two to three Years as the Supreme Court has a heavy backlog even though this Case was filed in 2009 and now up for final disposal at the next hearing ~ it keeps coming up in the cause list but because of the backlog it simply never comes up for hearing
- GEL may not Honour the Open Offer ~ This may appear as a Real Risk as the payout is Rs 31.03 Crs at Rs 43 in case SEBI wins and Rs 16.6 crs at Rs 23 in case GEL wins ~ have not considered any Interest from 2009 ~ However it has an Escrow put up pending disposal of the case and the Goldstone Group,even in a declining profitability scenario, may have more to loose if they do not honour the Open Offer committment
- Post Open Offer the GIL Share Price may nosedive sharply from the current Rs 10 ~ Let’s figure out how much could it be by looking at the Earnings and Book ~ These are the Financials and Relative Valuations
Financials & Valuations (Rs Crs unless specified)
|
Actual 9 Months December 31,2012 |
Projected Full Year March 31,2013 |
Actual Full Year March 31,2012 |
|
|
Sales |
47.01 |
63 |
59.78 |
|
PAT |
1.01 |
1.3 |
1.91 |
|
Equity |
14.43 |
14.43 |
|
|
Reserves |
59.27 |
58.69 |
|
|
Networth |
73.7 |
73.12 |
|
|
Long Term Secured Debt ~ almost all from State Bank of Hyderabad through Cash Credit & Term Loan |
31 |
31 |
|
|
Div (%) |
5 |
5 |
|
|
EPS (Rs) |
0.36 |
0.53 |
|
|
Book Value (Rs) |
20.47 |
20.31 |
|
|
PE |
28 |
||
|
PBV |
0.5 |
I have assumed that GIL will maintain dividend of 5% or Rs 0.20 per share even in FY 13 despite declining Profits
Potential Share Price Decline Post Open Offer
GIL’s Share Price is currently at Rs 10 to reflect some buoyancy in this Open Offer Pricing Dispute Situation pending with the Supreme Court ~ My sense is that Post Open Offer the Share Price of GIL will drop sharply from current Rs 10 to reflect declining profits ~ However if it maintains Dividend and because Book yet remains at Rs 20+ the Share Price may not drop to Rs 2.50 which would reflect Earnings Multiples of 8 on an EPS of Rs 0.36 for FY 13 and may remain above Face Value of Rs 4 and therefore can assume a post open offer share price of Rs 5
GIL continues to face many Operating Challenges ~ it has invested Rs 6.01 crs in a wholly owned subsidiary TF SolarPower Pvt Ltd which has incurred capex of Rs 9 crs till date but work has been put on hold since 2012 because of falling solar module prices and a troubled solar energy sector ~ In it’s Business of Polymer Insulators ,GIL is facing competition from cheaper imports ~ Power Sector Woes continue and despite huge Potential for the Insulator Business because of the ambitious 12th year plan for Power Generation,it looks unlikely GIL will see any significant uptick in business in the near term ~ It also has Long Term Debt of Rs 30+ Crs to contend with ~Interestingly the Debt is also secured by Equitable Mortgage of Immovable Property and Corporate Guarantee of the Acquirer in the Open Offer and Chief Promoter of GIL ,namely GEL now called Trinity Infraventures Ltd
However what caught my eye and intrigued me is that despite Profits in FY 12 their Consolidated Networth dropped from Rs 99.27 Crs+ to Rs 73.12 Crs + and the reason is that they have written off as Impaired Obsolete Machinery of a huge Rs 27.22 crs ! because they have discontinued Jointed Telecom Kits and BPO Business ! ~ they say nothing was recoverable !~I checked their Fixed Assets Schedule and even over Rs 6 crs of Computers have been knocked off ~ suspicious if you connect this with Judgement Day approaching in the SC where if Goldstone Exports,now Trinity Infraventure,loses they will have to shell out over Rs 30 Crs to pick up 20% Equity of GIL
And therefore I don’t think Goldstone will put their hands up ~ they will honour the Open Offer whether they win or SEBI does
On April 1,2013 GIL announced recently that their Company Secretary and Compliance Officer , Srikanth Adalat ,had resigned as on March 30,2013
Adalat goes even before the Apex Adalat gives a verdict !
Yet what’s the Risk in GIL at Rs 10 !
Cheers !
P S : 😆 Salafi,if you make some monies on this ,do be kind enough to remember me ~ and email me privately ~ my email is on this blog ~ and I shall tell you where to send my Fees !
16 thoughts on “This one is for Blogreader Salafi from Chennai ~ Goldstone Infratech @ Rs 10 ~ Open Offer at Rs 23 or at Rs 43 ? Supreme Court will decide ~ but it is a Win-Win either way”
Good analysis of Goldstone open offer. As per takeover code, interest for delayed period at 10% p a is tobe given to shareholders. Delay is about 4 year 7 months. Actual profit will be more.
Thnx Dinesh ~ Neither my Clients nor me & family own any Goldstone Share ~ as yet !~ I do see that it’s maintaining it’s price above Rs 10 ~ if 10% pa interest is added on the offer price it would of course lead to a better realisation ~ Just suppose that the Supreme Court decides to uphold SEBI and SAT’s contention and fix Offer Price at Rs 43,then even a simple interest for 5 years at 10% pa would move the price to Rs 64.50 and on a CAGR basis higher to just under Rs 70! ~ However there is also the possibility of No Interest coming into play ~ Also consider the risk that GEL may not be able to honour the Open Offer whether at Rs 23 or Rs 43 or with interest added on either Price !
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As per Supreme court case status, case next date for order is 30th July, 2013.
As Goldstone Infra, there is other good offer pending of Pitti Laminations Cmp 27, Offer @41/ SEBI directed for 72/ 120/, matter in SAT. Request to give your feedback.
extremely well written and comprehensive…. need to have patience .. SRMTL open offer too was in limbo and Apex Court gave the go ahead in May…open offer amount is in form of BG with SC…hoping for an early hearing
Thanks R Toshniwal….last listing was on 30/7/2013 and it should soon be heard and disposed….have advised clients to take small positions and a few have at Rs 10 thereabouts….price remains at this level,but will have to surge dramatically on Supreme Court Order and Acquirer announcing they will honour the verdict…..patience is a virtue 🙂
Can you share your view on Nakoda Ltd pending open offer ? SEBI directed to make offer in Nov 2013.
Hi Dinesh,
SAT has upheld SEBI’s contention that Nakoda Promoters jumped up their shareholding from 26% to 44% on 19/11/2011 and violated the 5% creeping acquisition limit allowed and thus they have to offer to buy out shareholders who held their share during that time at 10% interest from March 31,2012…The warrant conversions were done at Rs 10 and share price of the sub divided Rs 5 FV share too at the time in 2011 was Rs 8 to Rs 9…the subdivision was made from Rs 10 to Rs 5 on 4/1/2010….The company also declared and paid dividend for December Year end 2012….Promoters may contest now in Supreme Court or offer to buy out at Rs 10 + Rs 1.5 + Interest for more than one and a half years less dividend adjustment of Rs 0.30 (6%) declared and paid in September this year….current price is Rs 10…so I don’t see much benefit….Equity at September 30,2013 shows Rs 150 crs after Promoters converted more warrants on 28/9/2013….Some Warrants yet remain outstanding …..Of the 30 cr shares they hold now a 54% stake of @ 16.2 cr shares of which 3 cr + shares are pledged….Not going too much into the Valuation Merit of this Surat based Company as I see Clear Corporate Governance Issues…Trading Turnover was Rs 750 crs ,that’s 29% of total 2012 Sales of Rs 2578 crs…Profitability is not proportionately strong…High Imports of Raw Material and largely all domestic sales exposes the company to a weak rupee….windmills and subsidiaries….and outstanding GDRs…..pays only 30 paise dividend to shareholders when showing that earnings are Rs 3 per share…cares two hoots for SEBI Laws and guidelines….keeps issuing warrants to Promoters for conversion at Rs 10….Networth was Rs 443 crs at 31/1/2/2012 and on fully diluted basis assuming full conversion of outstanding warrants will move to Rs 936 crs + 2013 PAT of @ Rs 70 crs will bring the Networth to @ Rs 1000 crs with fully Diluted Equity at Rs 296 crs (currently Rs 150 crs as at 30/9/2013) and Reserves at Rs 640 crs + @ Rs 70 crs 2013 PAT….Thus Book Value of Rs 22.33 at 31/12/2012 will get diluted to Rs 17….Nine Months at 30/9/2013 shows an EBIDTA of Rs 131.13 crs and PAT of Rs 54.52 crs on Sales of Rs 2209 crs….Current Share Price hovers around Rs 10.50 on BSE and Turnover was strong at 1.72 lakh shares today against a two week average of just 8000 !….52 Week High /Low is Rs Rs 15.24/Rs 8.70 ….FIIs and DIIs are not shareholders and Market Cap is @ Rs 315 crs….Nah or Wah ! for Nakoda !? too many pondering variables to give it a clean chit…. ….Cheers, Gaurav
Gauravji, you are doing detailed analysis and sharing with others. Thanks for same. Same way will you share your views on Marg Ltd open offer pending after Supreme Court verdict.
Dear Dineshji,
Am travelling all week but will try to have a look at Marg Ltd
Can you share your view on pending open offer for Golden Tobacoo Ltd and Nakoda Ltd ?
#Goldstone Infratech:
Read on message board of moneycontrol.com that the hearing of the case was scheduled today. Please share your thoughts once the order is passed. Thanks
Hi Sumit,the matter was to be listed on 11/2/2015 and then on 18/2/2015 but it is yet pending as ‘Appearing in Present Weekly’ for quite a few months now….should be up for hearing soon I hope….Share Price has recorded Rs 19.40 before closing at Rs 19 in anticipation of hearing today….just checked that it’s likely to be heard on 26/2/2015
Sumit,try reassessing the Risk to Reward Ratio of Goldstone at Rs 19…if you dont consider any Interest element to be added to the offer price then if it’s Rs 23 one would see current gains having bought earlier at Rs 10 to Rs 15 diminish post offer and even result in a loss if your cost is over Rs 11.60 !…if Offer Price is Rs 43 the gains are alright if bought earlier but not now at Rs 19…the risk to hold is high….matter may be heard tomorrow Feb 26,2015
Thanks for the info. Had bought at Rs.9/- and willing to HOLD for some more time.